Section 965: A Traditional Corporate Tax Policy Evaluation


The American Jobs Creation Act of 2004 dramatically reduced the tax on foreign subsidiary dividend payments to their United States parent companies. By many accounts, §965 introduces perverse incentives into the tax code. Critics of §965 argue that the possibility of a future repatriation holiday encourages multinationals to hoard even greater profits abroad and lobby for their tax-free return. In the long run, §965 may exacerbate rather than mitigate the deferral of foreign source income taxation. Now that §965 is set to expire and the repatriation taxes it triggered have been collected, its full impact is beginning to come clear. As part of the American Jobs Creation Act, §965 proposed to stimulate the economy, ideally to create jobs. The provision’s critics have focused on its success in accomplishing those stated goals. This Article accepts those criticisms and instead looks to see if §965 can be defended with respect to other policy goals. Traditionally, corporate taxation had been justified as a limit on corporate management and opacity and as a revenue raiser. This Article argues that §965 may be defended as a revenue raiser, but further criticized as a means of regulating managerial power and increasing corporate transparency. The Article concludes that §965 provides some limited benefits in terms of short term revenue and transparency, but not enough to justify its long term costs.


Tax Law

Date of this Version

January 2007